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The Effects of Analystâ€Country Institutions on Biased Research: Evidence from Target Prices

Published: 15 November 2018

Authors: Mark T. Bradshaw, Alan G. Huang, Hongping Tan

Publication: Journal of Accounting Research, Forthcoming

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Prior research demonstrates that a strong institutional infrastructure in a country moderates selfâ€serving behavior of market participants. Crossâ€country economic activities have increased significantly, presenting a research opportunity to examine the relative influence of local versus foreign institutional infrastructure on individual market participants. We utilize variation in analystâ€country location relative to covered firm location to examine institutional determinants of optimism in analyst research. Focusing on target prices, where persistent optimism is well documented, we find that analysts domiciled in countries with stronger institutional infrastructures exhibit significantly attenuated target price optimism and more valueâ€relevant target prices. Our results demonstrate the importance of domestic countryâ€level institutional factors in moderating selfâ€serving behavior of market participants engaged in crossâ€country activities.


Desautels 22

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